Our Missio Is to Genera in Emergin Countries, B in Sustaina Private Sec Our Target Is to Make in the Poor Remaining Classified A

CDC Group plc CDC Group plc Cardinal Place Our mission Level 2 Annual Review 2007 80 Victoria Street is to generate wealth, broadly shared, London SW1E 5JL in emerging markets, particularly in poorer Telephone: +44 (0)20 7963 4700 countries, by providing capital for investment Fax: +44 (0)20 7963 4750 Email: [email protected] in sustainable and responsibly managed private sector businesses. www.cdcgroup.com Generating wealth in emerging markets Our target is to make at least 70% of our investments in the poorer countries * in the world and the remaining 30% in countries which are classified as poor. ** We also target at least 50% of our investments in sub-Saharan Africa and South Asia.

* Countries where Gross National Income (GNI) per head is less than US$1,750. Designed and produced by Radley Yeldar. Printed in England by CTD. ** Countries where GNI per head is less than US$9,075. Printed on HannoArt Silk, comprising of fibres sourced from well managed sustainable forests, incorporating FSC certified fibre and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards. (both in 2001 terms) CDC Group plc CDC Group plc Cardinal Place Our mission Level 2 Annual Review 2007 80 Victoria Street is to generate wealth, broadly shared, London SW1E 5JL in emerging markets, particularly in poorer Telephone: +44 (0)20 7963 4700 countries, by providing capital for investment Fax: +44 (0)20 7963 4750 Email: [email protected] in sustainable and responsibly managed private sector businesses. www.cdcgroup.com Generating wealth in emerging markets Our target is to make at least 70% of our investments in the poorer countries * in the world and the remaining 30% in countries which are classified as poor. ** We also target at least 50% of our investments in sub-Saharan Africa and South Asia.

Portfolio diversity IFC Portfolio value New commitments CDC CDC Outstanding investment Outstanding investment New commitments IFC i i commitment value commitment value Highlights and Performance 01 £1.2bn 5.2% £1.1bn 175% £m £m £m £m Statement from the Chairman 02 £1.2bn £1.1bn Actis 11 Legacy Funds 15.2 349.0 Capital Alliance Private Equity II 3.7 10.8 £1.1bn Actis Africa Fund 2 14.1 211.7 Capital Today China Growth Fund 10.1 4.2 The development process 04 £0.9bn Canada Investment Fund for Africa 1.5 10.9 Central Africa Growth Fund SICAR – 4.0 Fund managers 06 Actis Africa Empowerment Fund 3.6 21.5 CDH China Fund III 24.2 12.8 £0.4bn Actis Africa Real Estate Fund 46.2 13.7 CITIC Capital China Partners 9.0 2.9 Investee companies 08 £0.2bn Actis Agribusiness Fund 16.2 19.6 CMIA China Fund III 5.3 9.1 Economic growth 09 Actis ASEAN Fund 25.3 15.0 CVCI Africa Fund 40.1 10.0

a 05 06 07 05 06 07

c Actis Assets Fund 2 ––Dynamic India Fund VII 20.4 23.2 i

Statement from the Chief Executive 10 r f Actis China Fund 2 14.1 26.0 ECP Africa Fund II 10.7 14.2 A 14 Best practice investment and Portfolio by region New commitments by region Actis India Fund 2 7.6 54.2 Ethos Fund IV 9.0 8.1 development impact review 12 Actis India Real Estate Fund 50.4 – European Financing Partners 9.9 3.5 Af Af Africa £588m Af Af Africa £135m Actis South Asia Fund 2 4.7 54.9 Global Environment Emerging Markets Fund III 18.5 1.0 Business review As Asia £286m As Asia £353m As Actis Umbrella Fund 3.2 11.4 GroFin East Africa SME Fund 0.8 0.6 – Africa 14 LA Latin America £38m LA Latin America £101m Rf Rf Regional funds £272m Rf Regional funds £512m Actis Infrastructure Fund II 374.7 – Helios Investors 11.2 22.5 – Asia 18 LA Actis Emerging Markets Fund 3 100.8 – Horizon Tech Ventures – 0.7 – Latin America 22 Actis Africa Fund 3 75.6 – Horizon Fund III 5.3 0.1 Actis India Fund 3 50.4 – I&P Capital II 5.1 – – Regional funds 24 Actis China Fund 3 50.4 – IDFC Private Equity Fund II 5.7 9.8 Performance review 28 As Rf LA Actis Latin America Fund 3 49.6 – India Value Fund II 0.3 2.5 29 Actis managed funds 903.6 787.9 India Value Fund III 9.2 3.2 Board of Directors 34 International Finance Participation Trust (2004) 13.4 36.0 a CDC’s fund managers 36 i Aureos 10 Legacy Funds – 4.6 Kendall Court Mezzanine (Asia) Fund 3.9 3.1 s Portfolio by fund manager New commitments by fund manager

A 18 CDC’s fund commitments Aureos Central America Fund 1.5 2.8 Kotak India Realty Fund 23.2 1.8 1 1 Actis £838m 1 1 Actis £781m and investments IBC Aureos Central Asia Fund 9.9 – Lok Capital 1.5 0.4 2 Aureos £39m 2 Aureos £38m Aureos China Fund 9.2 0.3 Lombard Asia III 8.9 0.8 Contact details BC 3 Other £306m 3 Other £282m Aureos East Africa Fund 0.3 5.0 Medu Capital Fund II 5.0 0.4 3 3 Aureos Latin America Fund 13.0 1.9 Minlam Microfinance Offshore Fund 3.0 13.1 2 2 Aureos Malaysia Fund 4.9 – Navis Asia Fund IV 0.1 6.2 Aureos South Asia Fund I [Interim] 0.7 1.9 Navis Asia Fund V 23.8 10.1 Aureos South Asia Fund 10.7 6.1 New Silk Route Fund I 22.0 2.3

a Aureos South East Asia Fund 5.0 5.1 Nexxus Capital Private Equity Fund 9.6 0.1 c i

r Aureos Southern Africa Fund 1.6 4.5 Patria – Brazilian Private Equity Fund III 12.0 2.4 e Aureos West Africa Fund 1.0 6.6 Saratoga Asia II 22.5 0.1 m

A Emerge Central America Growth Fund 2.2 0.2 Shorecap International 0.9 2.0 n

i Kula Fund II Ltd 1.8 0.6 Sphere Fund 1 0.6 0.6 t

a 23 Aureos managed funds 61.8 39.6 Vantage Mezzanine Fund 5.4 1.9 L 22 48 Other managed funds 400.7 281.1 Access Holdings 2.0 0.6 Advent Latin America Private Equity Fund IV 8.4 1.6 4 Co-investments 5.0 75.5 Afghanistan Renewal Fund 2.6 – African Lion – 14.2 Total legal commitment to 100 funds African Lion 2 – 5.4 and 4 co-investments at end 2007 1,371.1 1,184.1 AIF Capital Asia III 16.0 4.9

s Avigo SME Fund II 6.0 4.1 d

n Baring India Private Equity Fund II 2.3 4.7 u f BTS India Private Equity Fund 8.6 1.1 l

a Business Partners International Kenya SME 0.5 0.3 n o

i Capital Alliance Private Equity I – 19.7 g e

R 24 Contents Portfolio diversity New commitments CDC’s fund commitments and investments

Portfolio diversity IFC Portfolio value New commitments CDC CDC Outstanding investment Outstanding investment New commitments IFC i i commitment value commitment value Highlights and Performance 01 £1.2bn 5.2% £1.1bn £m £m £m £m Statement from the Chairman 02 £1.2bn £1.1bn Actis 11 Legacy Funds 15.2 349.0 Capital Alliance Private Equity II 3.7 10.8 £1.1bn Actis Africa Fund 2 14.1 211.7 Capital Today China Growth Fund 10.1 4.2 The development process 04 £0.9bn Canada Investment Fund for Africa 1.5 10.9 Central Africa Growth Fund SICAR – 4.0 Fund managers 06 Actis Africa Empowerment Fund 3.6 21.5 CDH China Fund III 24.2 12.8 £0.4bn Actis Africa Real Estate Fund 46.2 13.7 CITIC Capital China Partners 9.0 2.9 Investee companies 08 £0.2bn Actis Agribusiness Fund 16.2 19.6 CMIA China Fund III 5.3 9.1 Economic growth 09 Actis ASEAN Fund 25.3 15.0 CVCI Africa Fund 40.1 10.0

a 05 06 07 05 06 07

c Actis Assets Fund 2 ––Dynamic India Fund VII 20.4 23.2 i

a Aureos South East Asia Fund 5.0 5.1 Nexxus Capital Private Equity Fund 9.6 0.1 c i

r Aureos Southern Africa Fund 1.6 4.5 Patria – Brazilian Private Equity Fund III 12.0 2.4 e Aureos West Africa Fund 1.0 6.6 Saratoga Asia II 22.5 0.1 m

A Emerge Central America Growth Fund 2.2 0.2 Shorecap International 0.9 2.0 n

i Kula Fund II Ltd 1.8 0.6 Sphere Fund 1 0.6 0.6 t

s Avigo SME Fund II 6.0 4.1 d

n Baring India Private Equity Fund II 2.3 4.7 u f BTS India Private Equity Fund 8.6 1.1 l

a Business Partners International Kenya SME 0.5 0.3 n o

i Capital Alliance Private Equity I – 19.7 g e

R 24 Highlights Performance

> Excellent total returns of £672m from successful Net assets portfolio companies. i > New commitments during 2007 to 31 funds with £2.7bn 33% 16 fund managers. £2.7bn > £35m invested in three co-investments alongside £2.0bn fund managers. £1.6bn > Majority of Globeleq’s power assets sold producing £281m realised gain and £621m cash. 05 06 07 > Commitments outstanding at 31 December 2007 of £1.4bn to 100 funds with 42 managers. Total return > Returns are reinvested in the developing economies of Africa, Asia and Latin America. £672m i79% £672m

£426m £375m

05 06 07

Outperforming MSCI Emerging Markets Index i20%

CDC Group plc Annual Review 2007 01 Statement from the Chairman

Sir Malcolm Williamson Chairman

“CDC’s excellent returns for 2007 are powerful evidence of the potential for investors in developing economies.”

CDC Group plc 02 Annual Review 2007 2007 was characterised by turbulent financial markets in More generally, rising commodity prices are putting downward pressure many developed economies. The sub-prime mortgage crisis on consumer spending in some countries. At the same time, company threatened slow downs in some economies and the credit valuations are often high and investors should be circumspect about squeeze contributed to an uncertain year. expectations of ever increasing returns from emerging markets.

Emerging markets, however, have been mainly unaffected by these issues Our shareholder, the Department for International Development (DFID), set in 2007. CDC’s excellent returns this year are powerful evidence of the CDC the task of developing a fund of funds business in 2004 and in just potential for investors in developing economies and I am delighted to four years that objective has been consummately achieved. The company report on a highly successful year for the business. now has £1.4bn committed to 42 fund managers and is invested in 100 funds. Since the beginning of 2004, the asset base of the company has Global markets are currently experiencing a downturn. Although many grown by over two and a half times and now stands at £2.7bn. emerging markets are buoyant with strong rates of growth, investors need to be watchful. At the close of 2008, the investment policy and arrangements put in place at demerger come to an end and CDC is working with DFID to We were reminded this year of the unpredictability of emerging markets. ensure that the business develops at an appropriate pace. The important The political upheavals in Pakistan and Kenya seen towards the end task of securing a sustainable business model for CDC is especially of 2007 emphasised this uncertainty and highlighted the need for apposite as CDC celebrates its 60th anniversary in 2008. Inevitably, there constant vigilance. have been changes over the decades and there will be more to come. All businesses have to adapt to changing commercial climates and CDC Emerging markets are not for the faint-hearted. CDC has a long history is no exception. Nonetheless, the current business model is working well of putting capital to work in some of the world’s most challenging and there is still much to be done in emerging markets where the equity economies. We are a patient investor and remain committed to finance approach is still in its infancy. Our central purpose remains these markets. unchanged: sustainable economic development in the poorer countries of the developing world through responsible investment in the private sector. CDC’s long term commitment is vital in uncertain times and serves as a reminder of the development impact of our capital. During the year the Board visited CDC investments in Ghana and Nigeria. We were very encouraged to see at first hand the added value contributed to businesses by CDC’s skilled fund managers. Actis’s investment in Lagos in the Palms shopping mall is an excellent example of how improving the retail infrastructure attracts the vital middle classes to live and work in Nigeria and professionalises supply chains locally, creating high levels of direct and indirect employment. Actis has now exited that investment and is putting its skills in the sector to work in an investment in a shopping mall in Accra, Ghana. We also visited other businesses in which CDC capital has been invested. Mouka, a mattress business in Nigeria is featured on pages 8 and 9. We also saw a small to medium enterprise investment in Ghana focusing on home loans, where it was especially encouraging to observe such active commitment to ethical business principles which are to a model standard.

Finally, congratulations to the CDC team on a successful year and my thanks to my fellow Board members for their continuing expertise and dedication. CDC’s team of investment professionals is the bedrock of the company’s impressive track record. Growing the team further and deepening its reach are vital to future success. CDC must continue to attract and retain the very best people. I also thank CDC’s shareholder, DFID, for its valued guidance and support.

Sir Malcolm Williamson Chairman

CDC Group plc Annual Review 2007 03 The development process

The scarcity of long term risk capital, particularly equity capital, is one of the factors which constrains the private sector in the developing world.

1 CDC capital CDC has assets of £2.7bn (US$5.4bn). Our purpose is to stimulate economic growth in the poorer countries of Africa, Asia and Latin America by investing successfully and responsibly in the private sector.

2 Fund managers We invest our capital with skilled and experienced private equity fund managers in our target markets. We expect our managers to achieve returns which are appropriate to the opportunities and risks in the relevant market.

3 Investee companies Fund managers deploy CDC’s capital in profitable and responsibly managed private sector companies across a range of sectors. We require our fund managers to implement CDC’s Best Practice Investment Code and to report on progress.

4 Economic growth Successful companies stimulate economic growth which reduces poverty. CDC’s profits are recycled into new investments in poor countries.

CDC Group plc 04 Annual Review 2007 Our investment is aimed at the private sector as the engine of growth. We aim to achieve: • a direct economic impact by providing capital for successful companies; • an indirect impact by demonstrating the benefits of successful investment to other capital providers; and • sustainable economic growth, which is the only route out of poverty for developing countries.

Asia 2 Africa

4 Latin America

CDC Group plc Annual Review 2007 05 2 Fund managers

We commit capital to skilled fund managers who know and understand the emerging markets of Africa, Asia and Latin America. We expect them to achieve returns appropriate to the relevant market and to implement our Best Practice Investment Code. In 2007 we placed capital with 16 new fund managers managing a total of 31 new funds in a range of countries including Cameroun, Pakistan and Bangladesh.

Ferdinand Ngon, Managing Director (Cameroun) Emerging Capital Partners CDC committed US$7.3m to the Central Africa Growth Fund in 2007. This fund is managed by a Douala-based team which became part of Emerging Capital Partners (ECP) in 2005. The fund invests in small and medium enterprises (SMEs) in Cameroun and neighbouring countries. ECP’s presence on the ground in Cameroun enables it to bring private equity skills to SMEs in a region where traditionally the private equity industry has been insignificant. By becoming part of ECP, the team in Douala will have the support of an experienced investor in African private equity. The team is building an interesting portfolio, including Kosan Crisplant Cameroun (bottled gas under the Glocalgaz brand) and Semme Mineral Water (bottled water from Mount Etinde).

www.ecpinvestments.com

Sev Vettivetpillai, Chief Executive Since 2001, Aureos regional private equity funds Aureos Capital have invested US$240m in 64 transactions. Over Established in 2001, Aureos is a leading global the same period, the regional funds have begun private equity fund manager providing risk capital to demonstrate how Aureos uses its infrastructure for expansion and change-of-control transactions in on the ground to generate value and create exit emerging markets for established businesses in the opportunities for its regional businesses. Aureos small to mid-cap segment of the market. is currently raising two second generation funds: the US$300m Aureos Latin America Fund and the Aureos generally invests in businesses with proven US$400m Aureos Africa Fund. track records and helps them reach their full potential, by mobilising its management expertise www.aureos.com and well established global network.

Aureos has 25 offices throughout Latin America, Africa and Asia. 14 new regional private equity funds were established between 2001 and 2007 with total capital commitments of over US$720m.

CDC Group plc 06 Annual Review 2007 Fund managers New commitments to fund managers include 42 i Africa Asia Latin America 16 Access Holdings CITC Capital Nexxus Capital 42 I&P Capital BTS India Advent International Medu Capital Kotak India Realty Partria Banco de Negocios Vantage Capital Avigo Capital Partners 26 CMIA Capital Partners Regional funds New Silk Route Advisors Global Environment Fund 13 Saratoga Capital Minlam Asset Management 2 Actis Infrastructure Fund 04 05 06 07 See page 36 for a full list of our fund managers.

Paul Fletcher, Senior Partner Actis With US$3.5bn of funds under management and over 120 investment professionals located in 14 offices, Actis is a leading private equity investor in emerging markets. Over the past ten years Actis has invested over US$2.9bn in over 150 investee companies.

Integral to its approach to business is the belief that the capital Actis manages creates opportunity for investee companies and their stakeholders. The firm is committed to promoting the sustainable growth of the private sector in emerging markets and its objective is to ensure that the capital raised and Umer Habib (left), Asad Zaidi (middle), potential, Pakistan does not yet have an established managed makes a lasting, tangible and positive Junaid Imran (right). private equity industry. difference in the emerging economies of Africa, JS Private Equity Asia and Latin America. The macroeconomic environment in Pakistan in CDC’s US$40m commitment to JS Private Equity recent years has improved markedly with strong is a good example of the pioneering, catalytic Actis provides equity capital for buyout and growth, credit rating upgrades and booming foreign role CDC capital plays in emerging markets. This growth capital as well as project finance. The firm’s direct investment. Pakistan appears poised to US$158m fund focuses on expansion capital and investments span a range of sectors including sustain 6-7% GDP growth in the next decade driven buyout investments of US$10-25m in sector-leading agribusiness, financial services, manufacturing, by the spending power of an emerging middle Pakistani companies across a variety of industries mining, oil and gas, real estate, retail as well as class, an expansion in the manufacturing sector, including manufacturing, telecoms, energy and telecoms and power together with broader higher public sector spending to remove agriculture. infrastructure. infrastructure-related bottlenecks and consistent government policies of liberalisation, privatisation www.jahangirsiddiqui.com www.act.is and reduction in bureaucracy. Consequently, there are many growth opportunities, but the private sector remains capital-constrained and, despite the

CDC Group plc Annual Review 2007 07 3 Investee companies

Fund managers invest in profitable, responsibly managed private sector companies. Successful, sustainable businesses make a vital contribution to their local economies. A thriving private sector is the engine of growth in developing countries, creating prosperity and sustainable economic development.

Mouka Limited Mouka was founded in 1972 by the Mourkarim family. The company included two divisions – a foam business and a steel and pipes business.

In June 2007 the steel and pipes division was de-merged and Actis, the fund manager, bought a majority stake in the foam business from the family shareholders.

Today, Mouka has the largest single foam production plant in West Africa and provides Nigeria and neighbouring countries with millions of mattresses.

The new business plan is focused on Mouka becoming the leading foam company in Africa by 2010.

Mouka is forecasting strong growth of over 50% in sales and operating profits in the year to June 2008 as a result of the reinvigorated management and strategic focus.

Investment Impact • Actis introduced Peju Adebajo, formerly the managing director of UTC Nigeria, as chief executive in July 2007. She is conducting an international benchmarking study comparing Mouka with African rivals to define the leadership position in Africa and is set to embark on a major new marketing campaign for the business. • Actis introduced an independent chairman, Dr Dotun Sulaiman, a highly regarded business leader and Chairman of Accenture Nigeria. • The business provides direct employment to more than 400 employees and a means of sustenance to nearly 5,000 people.

CDC Group plc 08 Annual Review 2007 4 Economic growth

Country review: Nigeria

BENIN NIGERIA

Abuja CAMEROUN Lagos

Gulf of Guinea

Q&A with Peju Adebajo, What is your ambition for Mouka? To make Fact file 1 Mouka the clear leader in foam in Africa. Our aim Population: 148m is to make our products widely available at reliable CEO, Mouka Limited: Life expectancy: 46 years quality and reasonable prices. We want Mouka I studied for a chemical engineering degree to be a breeding ground for young business talent. Adult literacy rate: 69% which has proved hugely valuable at Mouka, Projected growth 2008: 9% as many chemical processes are involved What are the biggest challenges to realising Nigeria GDP per capita (US$) 2 in the development of foam. I then took a the ambition? The big issues relate to change. Masters in Business Administration from The transition from family business to professional 943 Harvard Business School. I worked at Citibank corporation with structures, processes and formal 825 and Boston Consulting Group in London reporting lines is challenging. Achieving our ambition 777 before joining the United Bank for Africa on means embracing change wholeheartedly. This 674 a change programme. From there I became means new ways of thinking about the business. We’re making progress and we’re pressing towards managing director of UTC, a food company, 501 before being invited to join Mouka. our goal.

What challenges do you see ahead? We have to import the bulk of our raw materials. Rising prices and the high cost of doing business in Nigeria make it hard to keep consumer prices steady. We will need 04 05 06 07 (f) 08 (f) a step change in our processes to achieve this. Investment in vital infrastructure

Mouka is also a much imitated brand. Trademark Oil has been a blessing and a curse for the Nigerian protection agencies in Nigeria are hampered by lack economy. Although it has encouraged rent seeking of resources. This means we have to divert our own behaviour and poor governance, oil remains the resources to ensure consumer protection. backbone of the Nigerian economy, providing 95% of foreign exchange earnings and 65% of We want to benchmark Mouka against high government revenues. In 2007 oil production international environmental standards which mean declined and the underlying tensions in the Delta bearing costs our competitors choose to avoid. spilt over to serious security concerns. Peju Adebajo However, this will be a long term advantage for us. However, growth in non-oil sectors has been strong, reflecting the improved business environment What has been the scope and impact coupled with a strong entrepreneurial spirit and huge of Actis’s involvement? The scope is all potential markets. The key challenge for the new encompassing but particularly in corporate administration is to improve the infrastructure to help governance, advocacy within Nigeria on reduce the costs facing business. Government environmental issues and linking Mouka to success in improving the investment climate for the international partnership networks. Actis also private sector will further encourage the talent and assists in the area of business development. experience of the Nigerian diaspora to return home where their contribution to economic growth has such a vital role to play in Nigeria’s development.

1 Source: World Bank Development Indicators 2 Source: WEO (October 2007) and IMF June 2007

CDC Group plc Annual Review 2007 09 Statement from the Chief Executive

Richard Laing Chief Executive

CDC continued to mature in 2007 and is now one of the Taking the initiative premier emerging markets fund of funds investors. We CDC has a long tradition of taking the initiative and in 2007, we continued facilitate economic growth in the poorer countries of Africa, to identify market needs and to address them. The financial services Asia and Latin America by investing in successful private sector, for example, has enormous development potential for poorer sector businesses. 2007’s excellent results demonstrate our economies. A report published during the year by the Cass Business achievement. Returns of 33% show that portfolio companies School in London 1 highlighted this and drew attention to the role of within the funds in which CDC is invested are performing financial services in boosting growth and alleviating poverty through well. These are profitable and sustainable businesses, economic advancement. Within this sector, microfinance has a particularly paying taxes and creating employment, bringing all the powerful contribution to make in developing economies. By the end of economic benefits of a thriving private sector so urgently 2007, CDC had commitments to microfinance of US$45m to three key needed in the poorer economies of the developing world. funds, increasing CDC’s total exposure to this highly developmental sector. Similarly, we made significant investments in infrastructure in 2007, Extending relationships with fund managers a sector providing the essential foundations for economic growth. We made new commitments of US$2.2bn in 2007 and increased the Without considerable levels of investment in efficient power, transportation, number of fund managers from 26 to 42. We currently have Board telecommunications, ports and other types of infrastructure, sustainable approval for further commitments to 21 funds with 15 new managers. economic development in the poorest countries will be impossible. Selecting successful fund managers in some of the world’s most challenging investment climates is one of CDC’s key skills. We look for CDC has a strong track record in power investment. The sale to two managers with deep local knowledge and investment experience who consortia in 2007 of the majority of CDC’s power assets in Latin America, share CDC’s commitment to high environmental, social and governance South Asia and North Africa held in the wholly owned CDC subsidiary standards. Fund managers are sourcing an increasing number of deals, Globeleq, generated outstanding cash receipts of US$1.2bn representing in Africa as well as other regions, and are investing at an encouraging rate. an IRR of 18%. This has been a major achievement. Actis’s skilful They are raising successive funds and are establishing track records which management of Globeleq has attracted high quality commercial investors position them well to attract greater investor interest. into power in emerging markets and the impressive returns speak for themselves. Globeleq’s achievements are a development success story

CDC Group plc 10 Annual Review 2007 involving the delivery of safe and reliable power to meet the electricity example, are high, possibly too high in some cases; competition for deals demands of 60 million people in poor countries. This is discussed further may lead some managers to invest too hastily; fund managers’ own on page 25. running costs are increasing as hot markets lead to upward pressure The achievements with Globeleq and the ongoing need for further on key investment staff costs. infrastructure in our markets, led CDC and Actis to initiate the Actis Emerging Despite the note of caution, strong financial markets across CDC’s Markets Infrastructure Fund. It is managed by Actis and incorporates many geographies are leading to increased deal flow, exit opportunities and debt of the Actis and Globeleq professionals who made Globeleq such a success. availability. This is good news for poor countries. Economic growth is the We have committed US$750m of new cash and US$167m of existing single most powerful way of pulling people out of poverty 2 and CDC’s power assets in sub-Saharan Africa to serve as a platform for further capital is playing a crucial role in catalysing investment and creating investment. This is CDC’s largest commitment to a fund to date. We expect sustainable development. that other investors will commit to this fund during 2008. Barriers to growth Responsible investing Emerging markets have their risks. Despite efforts to improve the CDC’s dedication to our Best Practice Investment Code covering high investment climate in many emerging economies, the bureaucratic burden standards of environmental, social affairs and governance remains a in starting up and running a business is a major barrier to entrepreneurs cornerstone of our investment policy. Responsible investment is good and growth in many parts of the developing world. The World Bank’s business and CDC’s strong returns are compelling evidence that adhering annual ‘Doing Business’ report charts the progress of countries and is a to high ethical standards enhances business value. valuable method of tracking change and also encouraging countries and In 2007, we reviewed and improved our development impact assessment their governments to make improvements. Yet so very much has still to and best practice investment systems. We continued to work actively with change. In many African countries it takes as much as four times longer to set up even a small business compared to more developed markets and our fund managers and through them the portfolio companies, to add 3 value through responsible investment. In October we issued a statement the situation for obtaining licences is similar. Until these regulatory barriers with other development finance institutions, including the International are removed, business and economic growth will be stifled. Finance Corporation, placing corporate governance at the forefront of the Working with other development finance institutions sustainable development agenda in emerging markets as a facilitator of During the year I was privileged to hold the Chairmanship of the European international capital flows. Development Finance Institutions Association (EDFI), which fosters Private equity found itself in the public spotlight this year, with much co-operation between Europe’s development finance institutions and publicised concerns about accountability. The resulting Walker Report encourages the sharing of best practice between members. During the called for increased transparency and reporting by private equity firms. year, EDFI commissioned a report from the Overseas Development Institute CDC has always adhered to these important principles. Through our which confirmed our view that these bilateral organisations, each with its record of open communication and accountability, we have sought to own way of doing things, add considerably to development outcomes. draw attention to the profound benefits of responsible private equity Investing for the long term investment and we welcome the trend of greater openness across the CDC’s achievements in 2007 were impressive by any measure, industry. We will be firm advocates for such transparency in private equity outperforming the Morgan Stanley Emerging Markets Index by 20%. in emerging markets. Further details on the results are given on pages 28 to 33. Our significant Investing capital where it is most needed returns are now being reinvested in poor countries where responsible and Last year I highlighted the need to develop co-investment opportunities patient capital is urgently needed so that the process of the economic with our fund managers. This important mechanism allows CDC to invest development cycle can continue. where our capital is most needed. Despite positive investment I extend my thanks to our Board and our Chairman, Sir Malcolm opportunities, fund managers often have difficulty raising capital because Williamson, whose counsel and guidance have been invaluable. I also of geographic or other constraints. By supporting these managers, thank CDC’s dedicated team. CDC’s success depends upon their unique we are able to make a real difference and support companies that skills and dedication, often involving demanding travel regimes. We all look would otherwise be denied the added value of private equity investment. forward to another year maximising the impact of CDC’s capital in the In 2007, we made significant progress in co-investment with three poorer countries of the world. investments totalling US$70m in financial services in Africa and renewable energy in Asia. Co-investment is a highly effective way of deepening the effect of our capital and we will continue to look for further opportunities. Private equity and emerging markets Private equity in emerging markets is growing in stature and maturity. India and China have both enjoyed record years in terms of fund raising. In Africa the pace of investment has quickened and many managers Richard Laing have raised successive funds. Chief Executive Across emerging markets demonstrable returns are showing investors that private equity builds value in companies and investor interest has 1 Source: The Role of Financial Services in Alleviating Poverty and Delivering sharpened as more mature markets face the difficulties of the sub-prime Economic Advancement in Developing Countries/Emerging Markets: Cass Business School 2007. mortgage crisis and the ensuing credit squeeze. However, this has created 2 Source: Department for International Development White Paper, 2006. a heightened sense of expectation. Company valuations in India, for 3 Source: World Bank’s ‘Doing Business’ 2008 report www.doingbusiness.org

CDC Group plc Annual Review 2007 11 Best practice investment and development impact review

CDC’s core purpose is to create sustainable economic development through responsible and successful investments in private sector businesses in emerging economies.

All CDC’s investments are made with development impact in mind In 2007, CDC commissioned a report by Arthur D Little on the and we seek fund managers who share this philosophy, translating that development impact of Globeleq, CDC’s wholly owned subsidiary investing commitment into action in the added value their investment brings to in power in emerging markets. The report identified a wide range of portfolio companies. Our Best Practice Investment Code demands high achievements. The development impact of providing reliable and safe standards in environmental, social and governance matters (ESG) which power in countries where millions of people as well as businesses and contribute to building value in businesses and increase their attractiveness essential services lack access to electricity is immense. The report to other investors. Best practice investment and development impact concluded that Globeleq had effected significant improvements in the are core considerations at every stage of the investment process, from way the power industry operates in emerging markets. Operating the decision to invest through to monitoring investments during the life efficiency was improved due to the high standards of maintenance of the fund. introduced, which reduced emissions and improved national energy security. Globeleq was credited with dramatic health and safety CDC operates as a fund of funds, committing capital to managers who improvements throughout its operations as well as introducing best know and understand the business environment in their local markets. practice in working conditions. 15 of Globeleq’s assets were sold to A commitment to implementing best practice investment standards is two consortia in 2007, mobilising crucial commercial investment and a condition of CDC’s commitment of capital and we satisfy ourselves demonstrating to the market that power in emerging markets is a viable of managers’ credentials through an exhaustive due diligence process. investment opportunity. Our investment in Globeleq was managed by Actis Managers are required to assess the potential impact of all their and we are indebted to them for their exemplary input on Globeleq’s investments, allocate a risk rating to investments to determine the development impact, especially from Actis’s dedicated ESG team. appropriate level of management and monitoring required, and to assist portfolio companies to develop action plans to improve their Set out below are three typical examples of the wide range of activities where necessary. Portfolio companies also commit to best development impact within our underlying investee companies: practice standards and regular assessment, monitoring and reporting • expansion at Zambian egg producer Golden Lay Ltd, an Aureos is undertaken by fund managers. investment, has led to a 30% increase in jobs. A waste management strategy is being developed and world-class bio-security measures to CDC’s investment professionals devote a significant proportion of their counter the threat from avian flu are being introduced. The company time to monitoring and assessing the performance of our fund managers, plays an active role in its community, with programmes to address supporting them in improving the ESG aspects of their investments and problems in housing, water and sanitation, education and health; reporting to our shareholder and the wider community on the development impact of our capital. • Actis’s investment in Cavally, a rubber plantation in the underdeveloped western region of Côte d’Ivoire, demonstrates the viability of responsible The need to publicise the beneficial impact of private equity investment investment in a politically unstable environment. Conservation of was highlighted by the Walker Report published in November 2007. wetlands was undertaken to limit the environmental impact of the CDC has always been an active advocate of openness and transparency. plantation’s development and as part of its local social responsibility Private equity is a powerful investment mechanism and in 2007 many activities, Cavally has invested heavily in improving housing for its underlying investments across the CDC portfolio delivered outstanding workforce, building over 500 new homes. The company built a hospital results in terms of development impact. for the plantation, operates HIV/AIDS awareness programmes and has implemented initiatives in education; and

CDC Group plc 12 Annual Review 2007 Target investment split

1 1 Investment in poorer countries 70% 2 Investment in countries classified as poor 30%

Compagnie • our investment in V-Link through India Value Fund III is a strong example Heveicole de Cavally of the positive effect of CDC’s capital. V-Link is a 1,000-strong taxi company in Mumbai and the company has undertaken an extensive Fund manager: Actis programme of driver health and safety awareness, management training Investing fund: Actis Agribusiness Fund and environmental improvement to the fleet. A community outreach CDC fund commitment: US$93m programme has also been launched to support the educational needs Investment size: US$15m

of drivers’ families. CDC led the privatisation of this Côte d’Ivoirian rubber plantation in 1996. It purchased a 7,700 Along with 30 other development finance institutions (DFIs), CDC hectare concession from the government supported a joint statement positioning corporate governance at the including a 2,000 hectare rubber plantation. forefront of sustainable development in emerging markets. The initiative Cavally was set up to manage the asset developing highlighted the increasing role of good corporate governance as a a further 3,300 hectares of rubber plantation from facilitator of international capital flows. During the year CDC continued to 1996 to 2007. play an active role in sharing best practice with other DFIs in pioneering During 2006 the business produced 14,000 tonnes of rubber generating a turnover of US$27m and workshops across ESG issues. profits after tax of US$10m. SIAT, a trade buyer in the region, bought the We have strengthened our monitoring and evaluation processes and are business in August 2007 for US$40m, a 3.1 x cash investing further in supporting best practice investment across the portfolio multiple over 11 years. by expanding the CDC team responsible for this crucial aspect of our work. Investment impact Cavally employs 1,000 people, supporting the lives During 2007, we instituted an improved evaluation system to monitor the of 5,000 people. development performance of CDC’s investments in funds. This followed During the course of the investment there was a period of consultation with other DFIs and experts in the field, including investment in a new US$8m rubber processing a leading sustainable development organisation, Forum for the Future. factory, with a capacity of 14,000 tonnes. The factory has incorporated a water purification system The CDC system has been designed to be compatible with the findings and recycling capabilities. of a working group established by the World Bank, ‘Good Practice More than 600 local villagers have received extensive Standards for Evaluation of Private Sector Investment Operations’. training and support to become successful rubber planters. Cavally supports 12 extension officers to CDC believes that supporting businesses across all sectors in emerging provide villagers with advice, training and technical economies contributes to sustainable growth and development. Investing assistance to establish rubber plantations. in the financial services sector is crucial. Microfinance, in particular, has Two primary schools are supported on the sites an important role to play. We discuss CDC’s activities in this sector on of Cavally and the firm pays the salaries of four of the nine teachers. It also supports an adult literacy page 25 and 26. programme which was launched in 2007 with 75 participants. The output of the factory is exported and contributes approximately US$30m to the national economy.

CDC Group plc Annual Review 2007 13 Business review

Africa Portfolio value New commitments i £588m i50% £135m 37% £588m £214m £392m £335m £135m £135m

05 06 07 05 06 07 Portfolio by fund manager New commitments by fund manager

1 1 Actis £434.5m 1 1 Actis £100.5m 6 5 2 Aureos £20.0m 2 Other £34.9m 4 3 Capital Alliance £30.5m 3 4 Helios Partners £22.5m 2 5 Continental 2 Reinsurance £20.2m 6 Other (all under £20m) £60.9m

Portfolio by sector

A J B A Agribusiness £25.6m B Consumer £58.8m C C Energy £30.5m D D Financial services £200.0m E Healthcare £12.7m I H F Industrials £40.7m G Infrastructure £37.5m G E H Other £2.3m F I Materials £127.2m J Telecoms £53.3m

Five largest African investee companies New investments by funds include

Company Country Description Company Fund Country Description Diamond Bank Nigeria Commercial bank SA Block Aureos Southern South Africa Cleantech – brick Platmin South Africa Minerals, oil and gas Africa Fund manufacturing complex UAC of Nigeria Nigeria Food and food services SEP Pharma Central Africa Congo Healthcare – pharmaceuticals Growth Fund SICAR DFCU Uganda Commercial bank MTN Côte d’Ivoire ECP Africa Fund II Côte d’Ivoire Wireless telecommunications Moga Holdings Algeria Telecommunications Kosan Crisplant Central Africa Cameroun Gas storage and distribution Growth Fund SICAR Aviance Ghana Aureos West Ghana Transportation Africa Fund

CDC Group plc 14 Annual Review 2007 The turbulence of developed markets has not affected sub- Saharan African economies where there has been no slow down in growth, which remained strong at 6.5% in 2007 and the same is expected in 2008. 1 Even in countries with more globally integrated financial markets, such as South Africa, the banking sector has been largely unaffected by the volatility and risk aversion in international financial markets.

More private sector capital is coming into Africa as investors turn to emerging markets in their search for returns. Africa offers significant opportunities and the investment climate is improving, albeit from a low base. Nana Hostel

Africa is a core market for CDC. £907m, representing 33% of our funds under Fund manager: GroFin management, are in Africa. At the year end our fund managers are operating Investing fund: GroFin East Africa SME Fund from 35 offices in sub-Saharan Africa, spread across both oil exporting and oil CDC fund commitment: US$3m importing countries. The private sector is generally confident about the outlook Investment size: US$1.5m and we observe managers investing at a faster pace than historically, raising Nana Hostel was set up by Tom Kaaya to successive funds and building their track records of investments and exits. Fund develop residential accommodation on the managers are doing larger deals and this is raising the profile of the asset class in outskirts of Makerere University in Kampala, Africa. The African private equity industry is growing and maturing. The improved Uganda. profile and results are key factors in attracting both talented individuals and foreign The hostel will provide 450 rooms of affordable capital back to Africa. accommodation for 800 students at the university. Construction of the hostel began in the summer of 2005 and will be ready for occupation by To give a flavour of how our money was put to work in Africa in 2007 we are August 2008. highlighting transactions in banking and financial services, including microfinance, Investment impact in sustainable forestry, infrastructure and manufacturing. In markets across Africa, More than 50 jobs will be created in the but most reported in Nigeria, private equity managers have been assisting the maintenance of the hostel. A further 200 jobs were banking sector to become better equipped to meet the needs of its customers. created during the construction of the hostel. Accompanying each investment has been a clear focus on the business The success of Nana has led GroFin to support transformation needed to take advantage of opportunities in the market place. the investment of a second hostel in Makerere University, located near its business school. The Nigerian financial services sector was a theme for our fund managers. Actis GroFin will also invest in the development of two made a significant investment in Diamond Bank and CDC was able to co-invest hotels in Rwanda. The first is the Okapi in the centre US$50m alongside the fund. We were also able to co-invest US$10m alongside of Kigali and the second is the Belvedere in Gisenyi. ECP Africa Fund II’s investment in Continental Reinsurance. ECP also invested in InterContinental Bank in Nigeria. CAPE II invested in Cornerstone Insurance to assist the company to meet the increased capital requirements of the Nigerian insurance sector. Ethos took a stake in Oceanic Bank and Helios in First City Monument Bank.

In Kenya, Helios’s investment in Equity Bank, the market leader with over 70 branches in rural as well as urban areas, will help finance further development of the business, enabling the bank to extend its services to poorer people who are traditionally ignored by the more established institutions.

1 Source: International Monetary Fund Survey, Africa Growing Rapidly but Faces CDC Group plc Risks. February 2008. Annual Review 2007 15 Business review continued

Aureos, a manager focusing on the small and medium sized (SME) business “The big issues relate to change. space, is helping to create a regional microfinance grouping involving Micro Kenya The transition from family and Uganda Microfinance Ltd (UML), an innovative microfinance institution (MFI). business to professional UML provides savings and loans products to low-income clients (roughly half of corporation... is challenging .” whom are women) with informal collateral conditions and flexible repayment schedules. Aureos is working closely with the company to help improve corporate Peju Adebajo, CEO, Mouka Ltd governance, management information systems and internal controls.

Microfinance is under-developed in Africa and many of CDC’s managers are investing in MFIs. A case study on ShoreCap’s investment in the Gambian MFI Reliance Financial Services is featured on page 25.

Investment in infrastructure was also a theme for CDC in Africa this year. Following the sale of the majority of assets in CDC’s wholly owned subsidiary Globeleq, we made a US$750m commitment to the new Actis Emerging Markets Infrastructure Fund. We are hopeful that a significant proportion of this fund will be invested in new infrastructure assets in Africa. The fund has also been seeded with some of the African assets of Globeleq which have been retained in anticipation of further growth potential and value enhancement.

In the manufacturing sector, Actis invested in Mouka, a foam mattress producer in Nigeria. A case study of this investment appears on pages 8 and 9. ECP made an investment in a Nigerian fertiliser producer which was acquired through a privatisation process.

There were several encouraging exits across the portfolio during the year. Actis’s sale of The Palms shopping mall in Lagos was a reflection of the success of this important retail business and we will continue to support this type of business through Actis’s investment in a further shopping mall in Accra, Ghana.

In the horticultural sector, Actis exited its investment in Flamingo, a leading Kenyan fruit and vegetable business to an experienced investor in East African agribusiness. Actis’s exit from Cavally, a rubber business in Côte d’Ivoire is featured as a case study on page 13.

The troubling events following the Kenyan elections in late 2007 have caused short term damage to the private sector. The longer term nature of private equity and its focus on building businesses should help the Kenyan portfolio work through any short term problems.

Looking to the future, the impact on Africa of climate change is an inevitable subject of concern. CDC is actively looking for investment opportunities that will have a positive impact and Actis’s investments in sustainable forestry in South Sudan and Tanzania are good examples of this. We are also looking at biofuels and are seeing the development of an interesting sector which is attracting the attention of local and international investors.

CDC Group plc 16 Annual Review 2007 Diamond Bank

Fund manager: Actis Investing fund: Actis Africa Fund 2 CDC fund commitment: US$330m Investment size: US$134m CDC co-investment: US$50m

Diamond Bank of Nigeria was set up in March 1991 by Pascal Dozie. It is now quoted on the Nigerian Stock Exchange, with a GDR listing in London. Diamond Bank delivers full banking services from a network of 120 branches throughout Nigeria and Benin. It employs more than 2,000 staff. In June 2007 the bank received an investment of US$134m, representing the largest single private equity investment ever made in Nigeria. Diamond Bank is the ninth largest bank in Nigeria with a 5% market share. Diamond Bank has now received an A grade from Fitch Ratings. Investment impact 43 new branches opened in 2007. The investment will accelerate the development of a 200 branch network by December 2008. The operational performance of the bank has been boosted by the contacts and expertise of Actis. Two non-executive directors – Nkosana Moyo, a former Managing Director at Standard Chartered in Tanzania and senior advisor to the International Finance Corporation and Simon Harford, the former head of Virgin Nigeria in West Africa – now sit on the Diamond Bank board.

CDC Group plc Annual Review 2007 17 Business review continued Asia Portfolio value New commitments £286m i11% £353m i104% £286m £353m £257m £225m £173m £38m

05 06 07 05 06 07 Portfolio by fund manager New commitments by fund manager

1 1 Actis £158.9m 1 1 Actis £151.1m 2 Aureos £14.3m 2 Aureos £22.7m 3 CDH China £12.8m 3 Other £178.8m 6 4 ICICI Venture £23.1m 5 5 Navis £16.2m 6 Other £60.3m 4 3 2 3 2

Portfolio by sector

L A A Agribusiness £26.7m B B Cleantech £13.2m C K C Consumer £50.4m J D Energy £10.2m E Financial services £36.4m I H F Healthcare £32.4m D G Industrials £32.1m E G H Infrastructure £4.7m F I IT £10.5m J Manufacturing £14.6m K Materials £48.2m L Telecoms £6.2m Five largest Asian investee companies New investments by funds include

Company Country Description Company Fund Country Description Phoenix Lamps India Energy efficient halogen bulbs Andromeda Navis Asia Fund V India Call centres and direct sales Dalmia Cement (Bharat) India Construction materials through field agents Mivan Far East Malaysia/India Construction materials LMKR Holdings Actis South Asia Pakistan Information management Fund 2 solutions to the oil and Paras Pharmaceuticals India Healthcare/pharmaceuticals gas industry Taizinai Biotechnology China Beverages STS Holdings Aureos South Bangladesh Healthcare providers East Asia Fund Bangkok Ranch Navis Asia Fund V Thailand Food processing Truong Thanh Aureos South Vietnam Consumer durables East Asia Fund

CDC Group plc 18 Annual Review 2007 South Asia Economies across South Asia are buoyant and the Indian economy remains the powerhouse in the region despite a volatile year for the Sensex. Indian GDP growth averaged 8.5% to 9% in 2007 1 and a steadily growing middle class is leading to increased consumer demand.

However, the scale of poverty is massive. 34% of the population lives on less than US$1 a day 2 and many years of 10% plus growth are required to lift the country out of poverty. Moser Baer India has one of the largest private equity markets in Asia. Levels of fundraising are at an all time high with rates of investment to match. In 2007 US$14.2bn Photo Voltaic was invested 3, double the figure in 2006 which was itself a record year. India has come a long way very quickly. The total invested just five years ago was US$1bn Fund manager: IDFC Private Equity with some 15 fund managers dedicated to investments in India. There are now Investing fund: IDFC Private Equity Fund II over ten times that number of managers investing in India and this extraordinary CDC fund commitment: US$25m growth has brought increased competition for deals and upward pressure on fund Investment size: US$100m manager costs. Choosing the right manager is crucial in this environment. CDC co-investment: US$10m In October 2005, Moser Baer India Limited, the CDC has a vital role to play in the region and our capital is invested across world’s second largest manufacturer of optical media storage devices, launched a new a wide range of sectors. India’s need for infrastructure is greater than ever and subsidiary called Moser Baer Photo Voltaic managers are raising funds at a record rate. The key, however, is sourcing good (MBPV) focused on the manufacture of investment opportunities and this remains a challenge. During the year the photovoltaic cells and modules. US$1.25bn India Infrastructure Fund was launched by IDFC Project Equity. MBPV will produce solar cells and modules that CDC committed US$100m to this important new fund which will focus on can ultimately be used in providing clean renewable energy, telecommunications and transport together with commercial and industrial energy. MBPV is on course to become a global property. IDFC invested well in the sector during the year and examples include leader in the photovoltaic space. investments in hospitals, an equipment bank for the construction industry, India’s Currently the business has a 40 MW crystalline silicon cell manufacturing capacity. The investment largest ‘full truck load’ road transportation company as well as an investment of US$100m will enable MBPV to increase in Pipavav Port, the country’s first private sector port, located in the state of this to 360 MW over the next couple of years. Gujarat. In addition, the Dynamic India Fund made an important investment in a Management has plans to ramp up production shipbuilding facility and Baring India has made an investment in clean energy. capacity to over 1,000 MW (across various technologies in the photovoltaic space) over the next five years. In 2007 we investigated real estate in India. According to the Indian government’s Management anticipates a public listing of MBPV tenth Five Year Plan, the country is facing a housing shortage of at least 20 million on an international exchange over the next units with 70% to 80% within the low income sector. Some unofficial estimates 12-18 months. put the shortage at nearly four times that figure. The urban population is growing Investment impact at a rapid rate and demand for lower income housing is far outstripping supply. The investment has enabled Moser Baer to expand Quality also remains very low with 70% of households occupying no more than the capacity of its current solar cell and module two rooms. In addition, the Bank of India recently tightened monetary policy in real production facility, as well as expand into new technology verticals such as thin film and estate lending which has resulted in a shortage of capital investment in the sector. concentrated photovoltaic modules. The area of Noida, near Delhi, has benefited from Against this background, CDC made two significant investments in 2007. the investment. It is set to develop into a residential We committed US$100m to Actis’s US$250m Actis India Real Estate Fund. and industrial centre, bringing job creation. This is Actis’s first fund in the sector and the focus will be on lower-middle income Additionally management plans to expand its thin residential and commercial property. We also committed US$50m to the film technology vertical in Chennai, in South India which will have a beneficial impact on employment US$350m Kotak India Realty Fund II. These funds will also promote best practice in this area. in real estate corporate governance.

1 Source: The India Report, Astaire Research, December 2007. 2 Source: 2007/2008 Human Development Report on India published by UNDP. CDC Group plc 3 Source: Venture Intelligence India Q4 2007. Annual Review 2007 19 Business review continued

The development impact of financial services in developing economies China is profound and ShoreCap and Lok Capital continued to invest steadily in Despite the extraordinary rates of growth in China, averaging the microfinance sector. Lok investments in 2007 included the provision 10% over the last decade, a third of the population continues of enterprise, housing and education loans in Bangalore as well as an to live below the poverty line. investment in Spandana Sphoorty Innovative Financial Services, one of India’s largest microfinance institutions. Some 300 million people are classified by the World Bank as poor. The country continues to undergo dramatic change as urbanisation In the small and medium enterprises (SME) sector, we increased our gathers pace. Over half the population is still rural, but the urban population commitment to the Aureos South Asia Fund on the back of increased is growing by over 3% a year and is expected to constitute more than deal flow in India, Sri Lanka and Bangladesh. The fund made important half of the total within the next ten years.12 million people enter the job new investments in healthcare and the automotive industry in 2007. market each year. As population flows to the cities increase, the need for We also committed US$20m to the US$125m Avigo Fund II targeting jobs and homes will need to keep pace. A thriving private sector is essential industrial SMEs. for the provision of both, but company growth is constrained by immature capital markets and the lack of a strong credit culture in the banking We made significant commitments to a number of important new funds system. Smaller businesses in particular are held back by a dearth of in 2007 investing in niche manufacturing, technology and business intelligent capital and the banking system does not favour entrepreneurs. process outsourcing. We committed US$25m to the US$400m India Value Fund III and US$20m to the Mumbai-based US$68.3m BTS fund. CDC has committed over US$450m to China and a further US$75m is in the pipeline. Our capital is playing a catalytic role in the provision of growth Key investments in other parts of the portfolio include India Value Fund III’s finance, across the spectrum from small businesses to larger companies. V-Link Travel Solutions’ investment, a taxi licence and 1,000-strong vehicle We look for disciplined managers who add value to their portfolio business in Mumbai. Driver safety and family outreach programmes are companies and help them grow. Although the private equity industry is still being implemented and plans for liquid propane gas powered vehicles small in relation to the size of the economy, we are seeing good managers are progressing. and there is great potential.

2007 saw some important exits in South Asia. Actis sold its remaining Our fund managers performed well in 2007. Actis continues to build a investment in Glenmark Pharmaceuticals and also exited the Sri Lankan strong team with an interesting portfolio. This includes a US$40m growth investment in South Asia Gateway Terminal as well as its Engro fertilizer capital investment in Taizinai, a leading dairy company. We made a investment in Pakistan. India Value Fund II sold its investment in Trinethra, substantial commitment this year to Actis’s China Fund 3. Aureos’s a supermarket chain based in Hyderabad. China Fund, which also provides growth capital, is investing in Shandong Province, providing funding to small and medium sized businesses. Pakistan remains an important focus for CDC and our capital has a catalytic Aureos will shortly make an investment in a wind power company. role to play in this rapidly developing economy where government reforms have encouraged a more transparent and investor friendly environment. Capital Today, a first-time fund based in Shanghai, also made some Nonetheless, the political difficulties of 2007 are a reminder of the often interesting investments during the year, including those in Kung Fu, challenging nature of emerging markets and we maintain a close watching a steamed food fast food chain, Rong Qing, a refrigerated truck brief on developments. The Pakistani economy is growing at a rapid rate. distribution business, and DQY Poultry (see page 21).The fund’s aim is In 2007 real GDP growth was 6.4% 4. Although the private equity industry to provide expansion capital to mid-cap companies which are positioned is in its infancy, there are encouraging signs not least in the formidable to capitalise on the growth of the consumer market in China. pool of professional financial talent as well as the abundance of investment opportunities. CDH is tackling the difficult but important task of restructuring and privatising larger state owned enterprises (SOEs). Shuanghui, CDH’s CDC committed US$40m to JS Private Equity’s US$200m Fund I. This is pork processing business in Henan province, is a good example of this discussed on page 7. CDC supported the formation of this first time team. kind of investment.

We committed to the US$425m CITIC Capital China Fund in 2007. CITIC is a strong brand with a disciplined approach. The team focuses on SOEs and buyouts and has already made some promising investments, including Harbin Pharmaceuticals which manufactures pharmaceutical products and Chinese traditional medicines in North Eastern China.

CDC Group plc 20 Annual Review 2007 Finally we committed to CMIA, which provides growth capital to companies in second and third tier cities. CMIA has made investments Tirta Marta in a variety of businesses, including a food production company and a Fund manager: Aureos Capital vanadium mine in Gansu province. Investing fund: Aureos South East Asia Fund CDC fund commitment: US$20m South East Asia Investment size: US$4m The macro-economic picture is positive in the region. Currencies are strengthening and the economies are Tirta Marta was established in 1971 as a flexible packaging manufacturer but is now focused on growing. Private equity is showing signs of progress. developing biodegradable plastic made from Vietnam is a buoyant market with strong deal flow. Indonesia’s abundant supply of tapioca. Tirta Marta designs, manufactures and distributes Fundraising in Indonesia is stepping up and we committed US$45m Biobags – biodegradable plastic shopping bags to Saratoga Asia II in 2007. The fund will invest in a range of industries – with customers including retailers such as including agribusiness and infrastructure. We also committed US$70m Body Shop. In 2007, the business had sales of to the US$900m Navis Fund V this year, making CDC one of the fund’s US$7.7m. The company employs 300 people. largest investors. The fund will invest across a broad range of sectors, Investment Impact The fresh investment will enable the business taking majority stakes that allow the manager to adopt a hands on to improve existing machinery and invest in approach. Kendall Court Mezzanine (Asia) Fund I has had some interesting new equipment to support a marked expansion deals including an investment in an Indonesian consumer finance company. in production. The firm has invested in upgrading the financial Actis was active in the region during the year with the sale of Unza, a and accounting reporting systems and will develop Malaysian -based personal care products manufacturer, and an investment financial models to help with resource allocations. in Mivan, a manufacturing company again in Malaysia which designs It has appointed a new finance manager. innovative aluminium moulding systems for the construction industry across Asia. De Quing Yuan Poultry In Thailand the deal pipeline is healthy despite the political turbulence of 2007. Aureos South East Asia Fund, with a CDC commitment of US$20m , Fund manager: Capital Today is investing at a steady pace. Lombard Asia Fund II invested in a deal in Investing fund: Capital Today China Growth Fund Thailand during the year. CDC fund commitment: US$30m Investment size: US$14m

Central Asia Founded in 2002, De Quing Yuan (DQY) is now A shortage of risk capital is holding back diversification the second largest egg producer in China. Its in the economies of Central Asia. We made a US$20m 500,000 hens produce 300,000 eggs per day. commitment this year to Aureos’s Central Asia Fund, DQY sells branded green-graded eggs stamped with a brand and production date. The business its first foray into the region. increased like for like sales in the first six months of 2007 by 75%. The investment has been used to The fund has a US$100m target and will focus on SME investments improve the firm’s manufacturing plants and quality in Kazakhstan and Azerbaijan to create jobs, grow companies and develop control technology. management skills. Sectors for investment include financial services, Investment impact distribution and food processing. The deal pipeline is encouraging and The investment will help boost production levels CDC is pleased to have exposure in the region. by 500% to 1.5m eggs per day from 1.5m hens. Capital Today has taken an active board role, introducing a director who previously built a RMB10bn dairy business. It also has representatives on the compensation and strategy committees and is helping to hire a financial controller and factory head. A facility that generates power using methane, which will enable the firm to sell carbon credits following approval from the Chinese government, is being developed.

CDC Group plc 4 Source: Economist Intelligence Unit, February 2008. Annual Review 2007 21 Business review continued

Latin America Portfolio value i New commitments £38m 27% £101m £52m £52m £101m £38m

Nil £4m 05 06 07 05 06 07 Portfolio by fund manager New commitments by fund manager

1 1 Actis £28.7m 1 1 Actis £50.4m 3 2 Aureos £5.1m 2 Aureos £15.1m 3 Other £4.1m 3 Other £35.3m

Portfolio by sector

E A D A Agribusiness £24.1m B Consumer £6.6m C C Financial £4.2m D Infrastructure £1.9m E Other £1.1m

Five largest Latin American investee companies New investments by funds include

Company Country Description Company Fund Country Description Regal Forest Holding Co El Salvador Forestry Aluminio de Aureos Central Panama Materials – metals Nexus Film Corp Peru Media Panama America Fund and mining ASA Posters El Salvador Media Viena Group Advent Latin Brazil Hotels and leisure America Private Grupo Gayosso S.A. de C.V. Mexico Retail Equity Fund IV Avance Ingenieros El Salvador Infrastructure Credito Real Nexxus Capital Mexico Consumer finance Private Equity Fund Constructora e Emerge Central El Salvador Capital goods Inmobiliaria America Growth Centroamericana Fund S.A. de C.V.

CDC Group plc 22 Annual Review 2007 At the macro-economic level much of the region is performing well albeit with more modest growth rates than other emerging markets. The Mexican economy grew by 4.8% 1 in 2006 and in Brazil and Colombia by 3.7% and 6.8% respectively 2. In the smaller economies of Central America, the growth rate was almost 6% 3. The growing middle classes are driving consumer demand. However in spite of encouraging political and economic improvements, poverty is still a feature in parts of Latin America. In Brazil, for example, according to World Bank data, almost 14 million people 4 live on less than a dollar a day. Economic reforms in the ’90s have created a favourable investment environment Grupo Difoto for private equity in Brazil, where there is a booming IPO market. Private equity is maturing and there are good managers with interesting pipelines across all Fund manager: Aureos Capital sectors. Further reform is still needed, however, particularly on the fiscal side. Investing fund: Aureos Central America Fund Mexico is a case apart: although the economy is performing well, the private CDC fund commitment: US$10m equity market is less developed than in Brazil. Investment size: US$36.3m 2007 was a busy year for CDC in Latin America, with commitments to four new Grupo Difoto was originally founded as a family owned business with the distribution funds in the region. In Brazil, we committed US$30m to Patria’s third fund, which rights to Kodak in Guatemala. Management targets investments in mid-market companies in fragmented industry sectors. saw an opportunity to make a transition to Patria’s disciplined buy and build approach adds value to portfolio companies. a related and higher value added business The burgeoning middle classes are generating investment opportunities across a and so used private equity funding in March 2004 to acquire Xerox’s operations range of sectors including education, health and financial services. The fund is in Central America. projected to close in excess of US$500m. Making a success of the investment demanded Aureos launched its US$300m Aureos Latin American Fund early in 2007, a re-engineering of the corporate culture at targeting investments in small to medium enterprises (SMEs) in Central America, Grupo Difoto and a transition from a family run operation to one with multiple shareholders. the Andean region and Mexico with the aim of transforming small family-run companies into sustainable, professionally managed enterprises. New offices have Investment impact Aureos introduced more rigorous controls into been established in Colombia, Peru and Mexico. CDC committed US$30m to the Grupo Difoto business. Two Aureos executives the fund. Aureos stresses the importance of increasing environmental awareness joined the board, with one taking an active position among SMEs and improving health and safety and governance standards in in the acquisition committee that was set up to investee companies. examine potential targets. Aureos assisted Difoto in improving its corporate CDC’s greatest exposure in the region is through the Actis Latin America Fund 3 governance, refinanced the group’s debt and which targets mid market expansion capital and buyout investments. The fund lowered costs throughout the business. will initially focus on Brazil. Actis has opened an office in São Paolo. Financial reporting is now generated within ten days of the month ending and Ernst & Young In 2007 CDC also invested in Advent International’s most recent fund, Advent have been appointed as advisors for regional tax LAPEF IV, which closed at US$1.3bn. Advent, one of the most established planning purposes. players in the region with teams in Mexico, Brazil and Argentina, targets buyout This led to an increase in Difoto sales of 275% opportunities in mid to large companies in high growth sectors, often in cross between 2002 and 2005. A Caribbean conglomerate acquired a majority stake in country deals leveraging on its pan regional presence. Grupo Difoto in 2006. Prior to the commitments above, CDC committed US$20m to Nexxus Fund III in 2006. The fund’s first investment was in a consumer finance company with a strong focus on microfinance. With new commitments to Advent International, Patria, Actis and Aureos in 2007 together with the earlier investment in Nexxus, CDC reaffirmed its footprint in the major Latin American economies of Brazil and Mexico as well as in Central America but also gained an early exposure to the Andean region. 1 Source: Credit Suisse Q1 2008 estimates. 2 Source: ibid. 3 Source: Occasional Paper Series No. 257: Economic Growth and Integration in Central America, June 2007 produced by the IMF. 4 Source: World Bank Development Data, Brazil Country Profile, latest data available CDC Group plc is for 2004. Annual Review 2007 23 Business review continued

Regional funds Portfolio value i New commitments £272m 36% £512m £424m £512m £326m £272m

Nil £13m 05 06 07 05 06 07 Portfolio by fund manager New commitments by fund manager

3 4 1 1 Actis £215.8m 2 1 1 Actis £478.6m 2 International Finance 2 Other £33.3m Participation Trust £36.0m 2 3 Minlam Microfinance Offshore Fund £13.1m 4 Other £7.1m

Portfolio by sector

H B C A Agribusiness £3.5m B Consumer £5.9m G A F C Energy £104.8m D Financial £14.4m E Infrastructure £90.1m F Materials £10.3m G Minerals, oil and gas £32.4m H Other £10.6m E D

Five largest regional investee companies New investments by funds include

Company Country Description Company Fund Country Description Infrastructure Development Eleme Petrochemicals European Financing Nigeria Manufacturing Finance Company India Infrastructure Partners Songas Tanzania Power generation Empower Actis Infrastructure Global Power generation Mozal Mozambique Minerals oil and gas Fund II Minlam Microfinance Offshore Fund Global Microfinance ACCESS Access Holdings Madagascar Commercial bank Madagascar Umeme Uganda Power generation Dequingyuan Agricultural Global Environment China Cleantech – agriculture Technology Emerging Markets Fund III International Hindustan International India Farming Sugar Finance Participation Trust (2004)

CDC Group plc 24 Annual Review 2007 We approach a number of funds from a regional perspective to maximise the impact of our capital. In 2007 three important themes were addressed through regional initiatives: infrastructure, microfinance and the environment.

Infrastructure The need for infrastructure to support economic growth in emerging economies is immense. Safe and reliable power, efficient transportation and modern telecommunications are the essential foundations of any economy. Without them, sustainable development is not possible. Reliance Financial CDC has a long record in power and in 2007 we sold the majority of the assets held in our wholly owned emerging markets power subsidiary Globeleq. Services The excellent returns allowed us to establish a new emerging markets infrastructure fund to back greenfield and mobile power generation. CDC’s Fund manager: ShoreCap International commitment of nearly US$1bn comprises US$750m capital and three Investing fund: ShoreCap International investments valued at US$167m. It is our largest commitment in our 60 year CDC fund commitment: US$4m history and is an excellent example of CDC taking the initiative and putting our Investment size: US$0.7m capital to work where it is needed most. Reliance Financial Services was launched in late 2006 to provide microfinance services Managed by Actis, the Emerging Markets Infrastructure Fund will invest to sole traders, entrepreneurs and small and medium sized enterprises (SMEs) in predominantly in the power sector and will seek selective investment opportunities The Gambia, Africa. in transport and telecommunications. It expects to invest a significant proportion The company has a stated mission to become the of its commitments in development stage investments and will invest across leading and preferred financial services provider Africa, Asia and Latin America where millions of people have no access for individuals, SMEs and micro enterprises in to electricity. West Africa. Reliance has developed a network of solar The fund has an attractive pipeline of new investment opportunities with an powered kiosks that are cheap to erect, efficient and emphasis on Africa. convenient for customers. The first one was opened in Serrekunda market’s old car park in April 2007. Microfinance Reliance has built a team of nearly 72 professionals who are helping the business develop its client base Microfinance typically covers small loans to individual entrepreneurs, often and services, including foreign exchange, and was women, running very small-scale businesses in the developing world. These the first non bank financial institution in The Gambia individuals would otherwise find it impossible to access credit. This type of lending to be appointed as a direct agent of Western Union. is drawing increasing interest from commercial financial services groups, having As at 31 December 2007, Reliance has deposits of traditionally been an industry supported by non government organisations. US$3.75m and disbursed loans of over US$4m. The Mi crocredit Summit Campaign’ s 2006 report estimates that in the last ten Investment impact years, microfinance outreach has grown by between 25% to 30% annually, with The business has extended its network of kiosks 3,100 of existing microfinance institutions (MFIs) serving over 113 million clients and has developed two traditional branch networks worldwide. Despite this growth, the number of clients reached is still significantly as well as the head office in Barra in the North Bank smaller than the global demand. This is estimated to be as much as 3 billion Region of The Gambia. people by the Consultative Group to Assist the Poor. MFIs report exceptionally Reliance takes part in several community outreach high repayments rates of 97%. Microfinance fosters sustainable businesses and programmes, including the development of training has the potential for profound developmental impact. This is a highly effective programmes for local businesses. use of CDC capital.

CDC Group plc Annual Review 2007 25 Business review continued

In 2007 we committed US$26m to the Minlam Microfinance Offshore Microfinance fosters sustainable Fund, a commercial microfinance debt fund investing across Asia and Africa. businesses and has the potental This innovative investment will make available local currency debt capital for profound developmental to MFIs. The Minlam team has a solid track record in combining macroeconomic impact . expertise with fundamental investment analysis and we anticipate robust returns. We also committed US$15m of equity to Catalyst Microfinance Investors. The Catalyst fund will seek to establish new MFIs in the underserved markets of Asia and Africa following the successful model of ASA, one of the leading MFIs in Bangladesh.

These commitments bring CDC’s investment in microfinance funds since 2004 to US$45m. We also have exposure to microfinance through Lok Capital, ShoreCap International and Access. We are continuing to look at further opportunities to invest in microfinance funds and there is a promising pipeline for consideration.

Environment Climate change was high on the political agenda across the world in 2007. Attention has turned to the developing nations, and governments in emerging economies are having to juggle a growing need for energy with the need for environmental management.

CDC committed US$40m in the US$325m Global Emerging Markets Environment Fund III. The fund focuses on businesses with an environmental component. The team has a strong track record and the fund will help to increase the proportion of clean energy and clean technology used across emerging markets. Portfolio companies will be assisted to operate at best practice levels in terms of their social and environmental impact and the fund’s investments will support the development of sustainable natural resources. The fund will also help to reduce the risk of the impact of hazardous solid waste on the typically poor populations living close to industrial areas or informal waste sites. CDC’s commitment to this fund has helped to catalyse interest from other investors, thus increasing the levels of capital flow.

Actis Fund 3s Since its formation in 2004, Actis has performed exceptionally well and is now a leading pan-emerging markets private equity firm with over 120 investment professionals and some US$3.5bn of capital under management. Actis is now raising its third series of funds, comprising a Global fund and regional pools targeted at Africa, South Asia, China and Latin America. The Global fund will co-invest in the regional pools. At the end of 2007, CDC committed US$650m to Actis Fund 3s as an anchor investor. Actis has a promising broad based deal pipeline including investments in information technology, manufacturing, oil and gas and telecommunications.

CDC Group plc 26 Annual Review 2007 CDC Group plc Annual Review 2007 27 Performance review

Godfrey Davies Chief Financial Officer

“CDC’s gross portfolio performance in US$ was 57%, exceeding the MSCI Emerging Markets Index by 20%.”

CDC Group plc 28 Annual Review 2007 Description of the business and objectives Strategies for achieving the objects of the business CDC is a government-owned investment company that invests in private CDC carries out its mission mainly by investing in private equity and other sector businesses in developing countries where it has been an innovative intermediated collective investment vehicles. As a fund of funds, CDC investor for nearly 60 years. CDC is part of the UK programme for places its portfolio with skilled and experienced private equity fund promoting international development and the reduction of poverty. managers in our target markets. CDC also co-invests alongside certain The Government has no involvement in, or responsibility for, CDC’s fund managers. Before investing in a fund, extensive due diligence is day-to-day decision-making which is carried out by the CDC Board undertaken to try to ensure that top quality fund managers have been of Executive and Non-executive Directors based in London. CDC is chosen who will deliver above average returns in the chosen markets. required to operate commercially according to the highest standards CDC expects its managers to achieve returns that are appropriate to the of corporate governance. opportunities and risks in the relevant market. Amongst the features that CDC seeks in making a decision to commit to a fund are: CDC’s mission is to generate wealth, broadly shared, in emerging markets, • a credible thesis aimed at our preferred markets; particularly the poorer countries, by providing capital for investment in • a strong management team, preferably with a track record of investing sustainable and responsibly managed private sector businesses. CDC also successfully together for a number of years; plays a catalytic role, using our investments in funds to mobilise third party • prospective returns which are commensurate with the potential risk; and capital by demonstrating the benefits of successful investment to other • a management team who will apply high standards of business ethics capital providers. Profitable and sustainable private sector businesses are and corporate governance. the principal drivers for creating economic growth, which is critical to reducing poverty and improving living standards. Scarcity and unequal CDC evaluates fund performance according to the financial performance access to long term risk capital constrains the establishment and growth of the funds and the development impact which the funds have had in of viable businesses in our target markets. terms of creating profitable businesses that are economically sustainable, environmentally non-distorting and have a positive impact on the private Our investment strategy is to align our activities with our shareholder’s sectors in which they operate. objective of reducing poverty. We currently have two investment targets: 50% of new investments in sub-Saharan Africa and South Asia; and 70% Key performance indicators in the poorest countries of the world (defined as countries with an annual • CDC’s gross portfolio performance in US$ was 57% (2006: 43%) Gross National Income (GNI) per capita below US$1,750 in 2001). exceeding the MSCI Emerging Markets Index by 20% (2006: 14%). Both tests are measured over a five-year rolling period. We do not invest • Total return of £672.0m (2006: £375.0m). A fund net return of 33% in countries which have a GNI per capita of over US$9,075 or EU (2006: 23%) and an average annual return of 27% since 2003. accession countries. In making our investments we: • New investments on a rolling basis at 74% in poor countries exceeded • target an appropriate commercial return, which may vary by geography, the rolling five year target of 70%. product or sector; • New investments on a rolling basis at 67% in sub-Saharan Africa • require managers to invest in companies with a commitment to best and South Asia exceeded the rolling five year target of 50%. practice including environmental, social policies and governance; and • Third-party funds mobilised alongside CDC’s capital invested in Actis • aim to be catalytic and innovative in what we do. and Aureos funds amounted to US$653.4m (2006: US$259.1m).

Our core values are: • to be open and honest in all our dealings, while respecting commercial and personal confidentiality; • to operate professionally in a performance-orientated culture and be committed to continuous improvement; • to be objective, consistent and fair with all our stakeholders; • to be a good corporate citizen, demonstrating integrity in each business and community in which we operate; • to respect the dignity and well-being, safeguard the health and safety and treat fairly all our people and those with whom we are involved; • to work over time towards full compliance of our investments with the International Labour Organisation Fundamental Conventions and with the UN Declaration of Human Rights; and • to protect the environment, encourage the efficient use of natural resources and promote the improvement of the environment wherever possible.

CDC Group plc Annual Review 2007 29 Performance review continued

Value growth (£m) Portfolio by area

400 Unrealised profit 4 1 1 Africa 60% Realised profit 2 South Asia 24% 1,252 3 322 Investment 3 Asia Pacific 11% 658 4 Americas 5% (by underlying investee companies) 1,035 1,035 1,035

05 06 07

Current performance Total return continued Portfolio return 2007 2006 The MSCI Emerging Markets Index is designed to measure equity £m £m performance in the global emerging markets. In 2007 it rose by 37% Globeleq power realisations profit 281.0 – (2006: 29%). However, index rises of individual countries varied widely Other net realised profits 125.2 67.4 in 2007 with South Africa 15%, China 63% and India 71%. CDC’s gross Unrealised value movements 223.0 270.0 portfolio performance in US$ was 57% exceeding the MSCI Emerging Portfolio return 629.2 337.4 Markets Index by 20% (2006: 14%). Operating costs (8.3) (6.7) Other net income 51.1 44.3 The portfolio generated £406.2m (2006: £67.4m) of realised profits Total return after tax 672.0 375.0 which arose mainly from the Globeleq power realisation. Third-party funds mobilised The unrealised gain in the portfolio valuation was £223.0m (2006: One of CDC’s objectives is to mobilise third-party capital investment in £270.0m) driven primarily by gains in Nigeria and India. The largest fund emerging markets by demonstrating the benefits of successful investment valuation gains came from Actis Assets Legacy Fund at £52.7m, Actis to other capital providers. During the year third-party funds mobilised Africa Fund 2 at £46.6m and Nigerian co-investments of £45.5m. alongside CDC’s capital invested in Actis and Aureos funds amounted to US$653.4m (2006: US$259.1m). Operating costs Operating costs for the year of £8.3m (2006: £6.7m) have increased due Portfolio to legal costs on the more than doubled level of new fund commitments 2007 2006 activity in the year and portfolio monitoring activity from the 30 London £m £m office employees (2006: 27). Operating costs represent 0.41% of funds Portfolio at start of year 1,125.3 937.8 under management which compares favourably with industry benchmarks New investments 412.0 257.3 of up to 1%. Realisations (576.2) (339.8) Unrealised gains 223.0 270.0 Other net income Portfolio at end of year 1,184.1 1,125.3 Other net income of £51.1m (2006: £44.3m), which is mainly interest income, was higher due to the higher average cash balance in 2007. 2007 2006 £m £m Total return Portfolio 1,184.1 1,125.3 The overall result is a total return of £672.0m (2006: £375.0m). Net cash and deposits 1,405.1 771.1 The increase arose mainly from the £281.0m profit on the Globeleq power Other net assets 97.7 118.4 realisations. As a return on opening total net assets on a valuation basis Total net assets on a valuation basis 2,686.8 2,014.8 this represents a return for CDC’s shareholder of 33% (2006: 23%) this year and an average annual return of 27% since 2003.

CDC Group plc 30 Annual Review 2007 Portfolio by sector Cash and short term deposits held (£m)

A A Agribusiness 7% 1,601 Cash held H B B Financial institutions 21% 1,405 Outstanding G commitments C Infrastructure 18% F D Manufacturing 14% E Minerals, oil and gas 16% 914 833 771 F Power 8% 677 C G Telecommunications 5% E H Other 11% D (by underlying investee companies) 05 06 07

Total net assets increased in the year from £2,014.8m to £2,686.8m, Fund cash generated a rise of 33%. However, the portfolio, which consists of investments in The higher level of portfolio cash generation this year at £985.5m (2006: funds managed by fund managers and the legacy portfolio managed £407.3m) was driven by legacy portfolio realisations, in particular Globeleq by Actis, increased from £1,125.3m to £1,184.1m, a 5% increase. power assets which generated cash of £620.6m at a 1.7 multiple to cost This was low due to the high level of realisations in the year. and an 18% IRR. Other substantial legacy portfolio realisations were: Platmin platinum mining in South Africa which generated cash of £76.9m Cash flows at a 6.0 multiple and a 105% IRR; Punjab Tractors in India which 2007 2006 generated cash of £46.0m at a 4.6 multiple and a 33% IRR; Lenco which £m £m manufactures rigid plastic packaging products in South Africa generated Fund drawdowns (412.0) (257.3) cash of £24.2m at an 8.5 multiple and a 45% IRR; Palms shopping mall Funds cash generated 985.5 407.3 in Nigeria which generated cash of £28.5m at a 1.6 multiple and a 26% Net fund flows 573.5 150.0 IRR; and Compagnie Heveicole de Cavally in Côte d’Ivoire producing Other cash flows 60.4 (55.4) natural rubber which generated cash of £19.7m at a 3.1 multiple and Net cash flow 633.9 94.6 a 12% IRR.

Drawdowns by funds for new investments at £412.0m (2006: £257.3m) Cash and short term deposits held were significantly higher than last year with increased investment in Africa Despite the higher level of fund drawdowns, the very high level of portfolio and increased drawdowns from non-Actis managed funds. The ten largest realisations resulted in higher cash and short term deposits at £1,405.0m underlying investments are shown on page 33. (2006: £771.1m). Most of this balance is placed on deposit with the UK Government’s Debt Management Office. However, cash will be recycled into New investments fund investments and current outstanding commitments for investment into With new investments at 74% in poor countries and 67% in sub-Saharan 112 funds which stand at £1,600.8m, representing an over commitment Africa and South Asia, the rolling five year targets of 70% and 50% of 14%. respectively, were exceeded.

CDC Group plc Annual Review 2007 31 Performance review continued

Funds under management by fund manager Fund drawdowns (£m)

1 1 Actis 62% 412 2 Aureos 4% 3 Other 34% 257

156 3 2

05 06 07

Fund managers Fund commitment and investment CDC actively reviews fund proposals from private equity fund managers CDC within its investment universe. In 2007, CDC made new fund commitments Outstanding investment of US$2,103m (2006: US$810m) of which 71% were with Actis, commitment value 4% were with Aureos and 25% were with other managers. CDC also £m £m committed US$100m to co-investments. Despite the substantial 29 Actis managed funds 903.6 787.9 commitment to Actis funds in 2007, with the Globeleq realisation from the 23 Aureos managed funds 61.8 39.6 portfolio, the percentage of funds under management (CDC’s investment in 48 Other managed funds 400.7 281.1 funds plus outstanding commitments to the funds) by Actis has fallen from 4 Co-investments 5.0 75.5 74% at the end of 2006 to 62% at the end of 2007. Total legal commitment CDC made commitments to seven Actis funds totalling US$1,500m in to 100 funds and 2007 (2006: three funds, US$293m) being: Actis Infrastructure Fund II 4 co-investments at end 2007 1,371.1 1,184.1 (US$750m); Actis India Real Estate Fund (US$100m); Actis Emerging Markets Fund 3 (US$200m); Actis Africa Fund 3 (US$150m); Actis India Asia Healthcare Fund 12.6 Fund 3 (US$100m); Actis China Fund 3 (US$100m); and Actis Latin America Fund 3 (US$100m). During the year, CDC made commitments Atlantic Coast Regional Fund 7.6 to four Aureos SME funds totalling US$75m (2006: four funds, US$52m) Venture East Proactive Fund 10.1 as follows: Aureos Latin America Fund (US$30m); Aureos Central Asia Centras Private Equity Fund 7.6 Fund (US$20m); Aureos South Asia Fund (US$15m); and Aureos Malaysia JS Private Equity Fund I 20.2 Fund (US$10m). IDFC Project Equity Company I (Mauritius) 50.4 In 2007, CDC committed to 20 funds managed by other fund managers Infratel Indus (Co-investment) 10.1 totalling US$528m (2006: 14 funds, US$465m) from: Access Holdings SGAM Al Kantara 14.0 AG (US$5m); Advent Latin America Private Equity Fund IV (US$20m); Maghreb Private Equity Fund II 14.0 Avigo SME Fund II (US$20m); BTS India Private Equity Fund (US$20m); Central Africa Growth Fund SICAR (US$7.3m); CITIC Capital China Partners Travant Private Equity Fund I 15.0 (US$25m); CMIA China Fund III (US$30m); Global Environment Emerging Pakistan Infrastructure Fund 50.4 Markets Fund III (US$40m); Horizon Fund III (US$10m); I&P Capital II Catalyst Microfinance 7.6 (US$10m); India Value Fund III (US$25m); Kotak India Realty Fund (US$50m); Medu Capital Fund II (US$10m); Minlam Microfinance Offshore Capital Alliance Property Investment Company 10.1 Fund (US$26m); Navis Asia Fund V (US$70m); New Silk Route Fund I Board approved commitments (US$50m); Nexxus Capital Private Equity Fund (US$20m); Patria – to 12 funds and 1 co-investment 229.7 Brazilian Private Equity Fund III (US$30m); Saratoga Asia II (US$45m); Total 1,600.8 and Vantage Mezzanine Fund (US$15m).

CDC Group plc 32 Annual Review 2007 “In 2007 CDC made new fund commitments of US$2,103m... total net assets increased in the year from £2,014.8m to £2,686.8m, a rise of 33%.”

Largest underlying investments Diamond Bank DFCU Invested by Actis Africa Fund 2, Canada Investment Fund for Africa Invested by Actis Africa Legacy Fund and co-investment DFCU was founded in 1964 by CDC and the Ugandan Government. Diamond Bank is the ninth largest bank in Nigeria (with a subsidiary in It is a commercial bank operating in leasing, housing, finance and Benin Republic), with a strong focus on the SME and corporate sectors. term lending. The bank currently has 120 branches, 1,800 staff and a 5% market share. Mozal Infrastructure Development Finance Company Invested by Actis Assets Legacy Fund Invested by Actis Assets Legacy Fund 500,000 tpa aluminium smelter in Maputo, Mozambique. Funding for infrastructure projects in India, particularly telecoms, IT, power, Moga Holdings roads, ports and urban infrastructure. Invested by Actis Africa Legacy Fund Platmin The leading mobile operator in Algeria with over six million subscribers. Invested by Actis Africa Legacy Fund Alexander Forbes Early stage platinum mining in the Bushveld Complex of South Africa. Invested by Actis Africa Fund 2, Canada Investment Fund for Africa, Songas Actis Africa Empowerment Fund and Ethos Fund IV Invested by Actis Energy Legacy Fund Alexander Forbes is a diversified financial services company that operates Power generation in Tanzania. as an intermediary in the investment and insurance industries. UAC of Nigeria It is represented in 30 countries, with the majority of its operations Invested by Actis Africa Fund 2 and Canada Investment Fund for Africa in South Africa. A public company in Nigeria, focusing on food and food services. Continental Reinsurance Invested by ECP Africa II, Central Africa Growth SICAR and co-investment One of the largest Nigerian reinsurers.

Godfrey Davies Chief Financial Office r

CDC Group plc Annual Review 2007 33 Board of Directors

Sir Malcolm Williamson Chairman Richard Laing Chief Executive Appointed in January 2004. Sir Malcolm was awarded a knighthood in Appointed in July 2004. Richard joined CDC in January 2000 as the 2007 Queen’s birthday honours list for services to the financial services Finance Director and assumed the role of Chief Executive following the industry. He is Chairman of Signet Group plc, Deputy Chairman of restructure of CDC in 2004. In 2007, he was Chairman of the Board Resolution plc, a main Board member of National Australia Bank and of the Association of European Development Finance Institutions, a group Chairman of National Australia Group Europe Ltd. He is also a Board of 15 bilateral development finance institutions which provides long-term member of Group 4 Securicor plc and JP Morgan Cazenove Holdings. finance for private sector enterprises in developing and reforming He chairs the Advisory Board of Youth Business International and is economies. He is also a Trustee of the Overseas Development Institute, a Board member of the Prince of Wales International Business Leaders the UK’s leading independent think tank on international development. Forum. Until February 2004, he was President and Chief Executive of Prior to CDC, he spent 15 years at De La Rue where he held a number Visa International. He held various positions with Standard Chartered Bank of positions both in the UK and overseas, latterly as Group Finance in the 1990s, including that of Group Chief Executive from 1993 to 1998. Director. He was also a non-executive Director of Camelot plc. He also served as a member of the Post Office Board and was Managing He previously worked in agribusiness in developing countries, Director of Girobank. and at PricewaterhouseCoopers.

Board Committees Audit, Compliance and Risk. Chair: Arnab Banerji Remuneration. Chair: Andrew Williams Best Practice Investment and Development. Chair: Jonathan Kydd Nominations. Chair: Sir Malcolm Williamson Co-Investment. Chair: Sir Malcolm Williamson

CDC Group plc 34 Annual Review 2007 Arnab Banerji Non-executive Director Fields Wicker-Miurin OBE Non-executive Director Appointed in July 2004. Arnab is the Partner responsible for emerging Appointed in November 2004. Fields was awarded an Order of the markets investments at Lansdowne Partners. He was the Prime Minister’s British Empire in the 2007 Queen’s birthday honours list for services to Senior Policy Adviser on Financial and City Affairs from October 2001 international business. She is co-founder and partner of Leaders’ Quest, to April 2005 and was also appointed the Prime Minister’s Economic an international organisation which connects, engages and enables Adviser in January 2004. He was previously Investment Chairman of the leaders around the world to be more effective and responsible leaders. Foreign & Colonial Group. He served on the Advisory Council of the UK’s She is also Chair of its Advisory Board. Fields is a non-executive director Export Credit Guarantee Department for three and a half years from of Savills plc and a member of the Department for Business, Enterprise January 1997. He was also a member of the Morgan Stanley Capital and Regulatory Reform’s Executive and Strategy Boards. She is also a International Advisory Board for four years. He is a trustee of the Ethox Governor of King’s College, London. Previously, Fields was Chief Financial Foundation (The Oxford Foundation for Ethics and Communication in Officer of the London Stock Exchange and Chief Operating Officer and Health Care Practice). Partner of Vesta Group, an international venture capital firm investing in early stage technology businesses in Europe. Jonathan Kydd Non-executive Director Appointed in 1997. Jonathan is Chairman of the Best Practice Andrew Williams Non-executive Director Investment and Development Committee. A development economist, Appointed in July 2003. Andrew is a director of SVG Capital plc and he is Dean of the University of London’s External System and Visiting Chief Executive Officer of its fund advisory business, SVG Advisers Professor at the Centre for Environmental Policy of Imperial College, Limited. He is a Visitor of the Ashmolean Museum. He was formerly London. Up to February 2007, he was Chairman of NR International Managing Director of Schroder Ventures (London) Limited, having Ltd., a company which manages research programmes in developing worked for Schroders plc since 1983. This included a period as co-head countries. He is chairman of the Advisory Council of the UK’s Export of equity capital markets and four years in Japan where he was head of Credit Guarantee Department. corporate finance. He was also head of the Schroders Securities Asian divisions, with operations in Singapore, Hong Kong, Korea and Indonesia.

CDC Group plc Annual Review 2007 35 CDC’s fund managers

Fund managers 42 i16 42

26 13 2 04 05 06 07

CDC’s fund managers Acap Partners www.acap.com India Value Fund Advisers www.ivfa.com Access Holding www.accessholding.com I&P Management www.ip-mngt.com Advent International Corporation www.adventinternational.com Kotak Mahindra Group www.kotak.com Actis www.act.is Kendall Court www.kendallcourt.com African Capital Alliance www.aca-web.com Lok Capital www.lokcapital.com African Lion www.afl.co.za Lombard Investments www.lombardinvestments.com Aureos www.aureos.com Medu Capital www.meducapital.co.za AIF Capital www.aifcapital.com Minlam Asset Management www.minlam.com Avigo Capital Partners www.avigocorp.com New Silk Route Advisors Baring Private Equity Partners India www.bpepindia.com Navis Capital Partners www.naviscapital.com BTS Investment Advisors www.btsadvisors.com Nexxus Capital www.nexxuscapital.com Business Partners www.businesspartners.co.za Patria Banco De Negocios www.bancopatria.com.br Capital Today www.capitaltoday.com Saratoga Capital www.saratogacap.com CDH Investments www.cdhfund.com ShoreCap International www.shorecap.net Citigroup Venture Capital International www.citigroupai.com Sphere Holdings www.sphereholdings.co.za CITIC Capital www.citiccapital.com Vantage Capital www.vantagecapital.co.za CMIA Capital Partners www.cmia.com Cordiant www.cordiantcap.com ECP Africa www.ecpinvestments.com Ethos Private Equity www.ethos.org.za Global Environment Facility www.globalenvironmentfund.com GroFin www.grofin.com Helios Investment Partners www.heliosinvestment.com Horizon Equity www.horizonequity.co.za ICICI Venture www.iciciventure.com IDFC Private Equity www.idfcpe.com

CDC Group plc 36 Annual Review 2007 Contents Portfolio diversity New commitments CDC’s fund commitments and investments

a 05 06 07 05 06 07

c Actis Assets Fund 2 ––Dynamic India Fund VII 20.4 23.2 i

a Aureos South East Asia Fund 5.0 5.1 Nexxus Capital Private Equity Fund 9.6 0.1 c i

r Aureos Southern Africa Fund 1.6 4.5 Patria – Brazilian Private Equity Fund III 12.0 2.4 e Aureos West Africa Fund 1.0 6.6 Saratoga Asia II 22.5 0.1 m

A Emerge Central America Growth Fund 2.2 0.2 Shorecap International 0.9 2.0 n

i Kula Fund II Ltd 1.8 0.6 Sphere Fund 1 0.6 0.6 t

s Avigo SME Fund II 6.0 4.1 d

n Baring India Private Equity Fund II 2.3 4.7 u f BTS India Private Equity Fund 8.6 1.1 l

a Business Partners International Kenya SME 0.5 0.3 n o

i Capital Alliance Private Equity I – 19.7 g e

R 24 CDC Group plc CDC Group plc Cardinal Place Our mission Level 2 Annual Review 2007 80 Victoria Street is to generate wealth, broadly shared, London SW1E 5JL in emerging markets, particularly in poorer Telephone: +44 (0)20 7963 4700 countries, by providing capital for investment Fax: +44 (0)20 7963 4750 Email: [email protected] in sustainable and responsibly managed private sector businesses. www.cdcgroup.com Generating wealth in emerging markets Our target is to make at least 70% of our investments in the poorer countries * in the world and the remaining 30% in countries which are classified as poor. ** We also target at least 50% of our investments in sub-Saharan Africa and South Asia.